Gold fell pretty hard today along with all commodities but generally we have to think of what is happening in a bigger more macro economic way as we find the dollar to be strenghtening against the Euro but how long will this last if the EU decides to cut rates and start bailing out bank after bank?  Well shouldn’t we rationalize that they will start doing the same thing if they are about half a year to a year behind us?  Well should the gains in the dollar be tempered than?  Should gold rise because of that?  Well there actually shouldn’t it be an inverse relationship?

From the chart you can see that the dollar is hitting a double top at a lower MACD.  It will may hit a new high but at less momentum?  Can this be a double top?  Can the flight to the dollar be increasing during a recessionary period?  But let’s look at gold.

It seems that gold broke out of a downtrend and it reversing but why isn’t it making a double bottom because it should be pretty much inverse of the dollar but it seems that the relationship has decoupled.  Why has it decoupled?  Well it may have something to do with the commodities sell off that affected gold so suggesting that perhaps the low of gold wasn’t really supposed to happen and this point around $800-$830 is really the bottom?  Or perhaps gold may be suggesting increasing fear within the market for all cash in general?

Now let’s think of the markets.  It’s rather disconnected from reality at this time.  We are unsure of the economy.  We are unsure of the bailout although we know it should pass tomorrow morning.  Will it prompt another sell off?  But the market is extremely oversold but this time there is no possibility of a squeeze in the market so how do we play this?  Should it keep going down?    In no other period of my short trading career have I been more unaware of market direction than at this time.  I parallel this situation in the economy as the same as earnings for a stock where it can go up incredibly or even go down (although downside may be somewhat tempered but who knows).  I usually don’t swing for the fences and play earnings and for this market, I need to apply the same principles that have kept me safe and successful.

Disclosure: Long GLD, AUY, Short: IYT